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Bonds show promise as VN economy recovers

Update: February, 11/2012 - 11:09

HA NOI — The bond market has significant advantages despite ongoing economic difficulties, says Viet Nam Bond Market Association vice chairman Trinh Hoai Giang has said.

This past year, banks were forced to reduce credit growth, earning reduced revenues from lending while facing an increasingly tense situation as to liquidity, Giang said.

"Therefore, Government bonds are the best choice for banks to invest funds while preserving liquidity, as the bonds may be resold immediately at any time when necessary," he said.


Bonds auction nets $190m

The Viet Nam Development Bank successfully auctioned VND4 trillion (US$190 million) worth of Government bonds on the Ha Noi Stock Exchange on Wednesday. The winning rate was 12.2 per cent per year for VND2 trillion worth of three-year bonds, and 12.25 per cent for VND2 trillion worth of five-year bonds. — VNS

High inflation remained an obstacle to the bond market, he said, driving banks to offer interest rates of 14 per cent per year in order to attract deposits, while Government bonds were paying an average of about 12 per cent.

"It will be easier to issue bonds once inflation falls to 11-12 per cent," he said

Giang also noted that about VND50 trillion (US$2.38 billion) worth of existing bonds were due to reach maturity this year, which means much of that capital would be available for reinvestment.

Joint schemes by the Ministry of Finance, the State Treasury and the Ha Noi Stock Exchange to restructure the bond market, including issuing bonds in large lots and gathering smaller bond issue into a few major codes, should help increase market liquidity and make bond trading smoother, he added.

Vu Anh Duc, the deputy director of Vietinbank's investment department, said he anticipated a difficult year for the bond market as banks were seeing increasing bad debts and lower liquidity, and the State Bank of Viet Nam was expected to continue tightening the money supply.

"Last year, about VND100 trillion ($4.75 billion) worth of bonds were traded on the secondary market, but we should note that commercial banks were using bonds as a tool to lend to each other," Duc said. "Thus, a large portion of the transactions was lending activities and the practical demand for bonds was much lower."

A bright point, he said, was that the Ministry of Finance was making an effort to generate some "tycoons" for the market who would be the key links in selling bonds to the market as well as buying them back when investors needed to unload them.

"Though the economy really needs time to recover, we believe that bright points about monetary conditions during the second half of the year will help bond interest rates and lending rates decline, and these will bring some support to bond prices," Dan Svensson, the head of Dragon Capital's research department, told the Dau Tu newspaper (Vietnam Investment Review).

However, Svensson warned that the banking industry's need to restructure would hold back the corporate bond market in the short term, and that the small number of investors would continue to inhibit the bond market in terms of both liquidity and growth. — VNS

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